GNMA: Fueling Risky Lenders?

by Alex Stenback on December 10, 2009


To this point in the mortgage banking meltdown, Fannie Mae, Freddie Mac, and the FHA have gotten most of the attention. 

But now the Washington Post and something called the Center for Public Intergrity have set their sights on Ginnie-Mae (the lesser-known Government backed enterprise that insures FHA-based mortgage securities) for their ongoing relationship with “troubled” lenders.

At issue: GNMA continues to endorse at least a few lenders with awfully skanky track records:

More than a dozen lenders with Ginnie’s endorsement have made loans that are now delinquent at rates far in excess of what regulators consider acceptable. And some of these lenders have been accused of misleading both borrowers and the government about these loans.

Ginnie, in it’s own defense, says that policing the lenders is primarily the FHA’s job, but they are tightening standards, and by the way:

…the average delinquency rate on all their loans is lower than that of the overall market, which has suffered mortgage defaults and foreclosures on a scale unseen since the Great Depression. These officials added that they have never needed taxpayer money to meet their obligations and have enough money in reserve to cover foreseeable losses

Hard to know where this goes, but we’ve certainly heard similar “we’re fine, there’s nothing to see here” assurances before, and you can be sure there are a few more rocks to flip over before the residential finance mess is over.

Without doubt, the response of GNMA and the FHA to concerns over their health will eventually lead to stricter standards that will trickle down to individual borrowers.  Case in point – the FHA even now is seeking higher down payment, credit score, and insurance premiums to offset their losses.

Ginnie Mae’s Growth Fuels Risky Lenders []

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